PRESIDENCY NOTE
Capital Markets Union – way forward:
Informal ECOFIN, April 5-6 2019

1. INTRODUCTION
The Capital Markets Union (CMU) was launched in 2015, with the aim to boost
European economic growth by creating deeper, more diversified and more
liquid capital markets, as well as removing barriers to cross-border investment.
In order to have in place the key building blocks of the CMU by the end of
October 2019, European Commission has put forward a range of measures
including legislative, procedural and market-led initiatives.
Significant steps have been made towards achieving the CMU’s objectives. With
7 months until the deadline, most of the legislative proposals included in the
CMU Action Plan (a total of 13 plus 3 dedicated to a greener economy) are
agreed or already adopted.
In March alone, this substantial progress has translated into agreements being
found between the co-legislators on the European system of financial
supervision, the supervision of central counterparties, the promotion of SME
growth markets, and disclosures relating to sustainable investment and
sustainability risks.
Statistics in different sectors of the financial industry support the argument that
these measures have stimulated positive developments: the availability of pools
of capital for investment have improved in many EU Member States during the
last five years; the EU is emerging as one of the global leaders in the growing
field of sustainable finance; overall, EU capital has shown an increasing level of
integration.
However, there is still room for development. For CMU to better reach its
ambitions and further transform them into an economic reality, given the
challenges the European financial markets are facing now, 2019 should not be
the end of the road.
The effectiveness of the CMU depends significantly on the behavior of private
actors (individuals and companies) and/or the efficiency of the incentives. Thus,
the legislative initiatives will provide the momentum, but it will be for the
economic agents and the financial community to transform it into a lasting
trend.

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This is one of the many reasons why the efforts of the European institutions and
the commitment of the Members States have to continue and the CMU should
be an important topic on the agenda of the future legislative term. It is more
vital now than ever to have strong and integrated European capital markets,
particularly when considering the UK decision to leave the European Union.
The CMU has already been complemented with measures to respond to the
perspective of Brexit during the Mid-term review in 2017. Still, a look at the new
environment and of the progress made so far in regards to the resilience,
integrity and market supervision is a prerequisite for building open and
competitive capital markets.
It is necessary that the CMU measures allow the further development of capital
markets across the Europe, for the benefit of all Members States, considering
that there are significant differences between the countries in terms of capital
markets development. The CMU objective is to create a framework to better
connect the financing to investment projects in the small, but high growth
potential markets and to create greater cross-border investment opportunities
for the more developed countries.
The main trigger for launching CMU was the slow recovery pace of the European
financial sector that followed the global financial crisis. Financial stability
considerations were not the primary driver, although integrated financial
markets were expected to improve Europe’s shock-absorbing capacity through
cross-border risk sharing. After the contagion risk exposed during the financial
crisis, there was a need to carefully look at how more integrated and deeper
capital markets can bring the benefits to investors and companies, without
compromising the system stability.
Even if important steps were taken to address the vulnerabilities manifested
during the recent financial crisis, new kind of challenges for financial stability
emerged in the years: an increasing systemic relevance of the non-bank financial
intermediation, especially related to asset management industry, the
concentration of risks in Central Counterparties (CCPs), and in general more
interconnectedness between institutions and segments of the financial system.

2. ISSUES FOR DISCUSSIONS
The following issues could be taken up as a starting point for further
reflections:
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a) How CMU embraces innovation in a more digitized economy while
within the EU the financing still relies heavily on the banking sector?
b) Do you think that European capital markets and banking sector are
better equipped today than 2008 to face another potential financial
crisis?
c) Are the firms and the financial sector ready to disrupt their own business
model and transform in order to accommodate the requirements of the
green economy and embedding more ethical and customer-centric
behaviors?

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